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Rumours Drive Bourse Up

The bourse did make gains last week, but on sentiment, not on fundamentals, a market source told this newspaper on Friday (26).
Such sentiment was driven by retail interest in penny stocks, he said, largely on rumours.

The ASPI week on week had grown by 1.4% to close at 5,962.17 points; while the S&P SL20, which reflects and includes the movement of blue-chip stocks in the review period made gains only at half that pace, at 0.7% to close last week at 3,359.36 points.

The market, in the calendar year to date, largely driven by foreign interest in blue chip stocks, has seen a net foreign inflow of Rs. 8.6 billion.
The recent electricity hike, falling gold prices and their impact on banks’ profitability has had  in general dampened local investor confidence,  he said. According to him there is no reason for investors to believe that the bourse is a better bet for investment rather than the fixed income market, though indications given by the authorities are that interest rates will fall.

The recent electricity hike is expected to hit companies’ current quarterly earnings, he said. It’s also another nail in the coffin on the stock market due to the further erosion of local investor spending power, in a scenario where they have  already taken a hit due to the rising cost of living, the source said.

“Added to that, bonuses and increments have been affected due to companies faring badly, which makes matters worse for the bourse as investors are being hit,” the source said.

He further said that falling gold prices too will impact banks’ bottom lines. “Banks which are in the pawning business, in the event of default will now be saddled with collateral (gold) which would be lower in price when compared with their previous valuations, ie at the time those loans were released,” he said.

In respect of current foreign interest in the stock market, the source said that interest is confined to only around a few blue chip banks, John Keells Holdings plc and lately on the seemingly illiquid Lion Brewery shares.

- Paneetha Ameresekere

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